Authored by Dr. Sean Lin and Mingjia Jacky Guan via The Epoch Times (emphasis ours),
Recently, various health agencies around the world have approved and are actively pushing for another COVID booster shot, meant to enhance the vaccine efficacy against a COVD-19 infection.
However, many studies have found that the boosters do not make a significant difference in protection, especially in terms of protection against reinfection. In fact, the latest data shows vaccine efficacy against the coronavirus tends to even drop into the negatives after just a few months.
What Does Negative Efficacy Mean?
It is a well known fact that COVID vaccine effectiveness wanes quickly as time goes on; this is confirmed by countless studies.
Although the official narrative for COVID-19 vaccines nowadays only emphasizes its efficacy on protection against ICU admission and death rates, it actually implies the indisputable fact that vaccines don’t protect, contrary to their design, against infection or even symptomatic infection, especially after the emergence of various Omicron variants.
Even the protection two shots offers against hospitalization drops to about 40 percent after less than a year. It’s actually looking worse for protection against severe symptoms, as efficacy rates seem to drop into the negatives about five months into full vaccination.
When a vaccine’s efficacy drops into the negatives, it means that vaccination actually elevates the risks of hospitalization and severe diseases rather than reducing the risks. In simple terms, it does more harm than good when the efficacy is negative.
During the time prior to the pandemic, any vaccine with an efficacy less than 50 percent would be regarded as a poor product. When a product shows negative efficacy, it should be banned. It seems that the pandemic isn’t only bad for our health, but also is tugging at our common sense.
COVID Vaccines’ Declining Usefulness
It has been around three years since the first COVID-19 case was discovered in Wuhan, China. Since then, more than 600 million cases of the virus have been recorded, translating into a little less than 1 in 10 people around the world already being infected with the virus. In many countries, “living with COVID” has become the norm, along with getting “fully vaccinated” and getting those booster shots.
According to the Centers for Disease Control and Prevention (CDC), it is recommended that everyone 6 months and older should receive a full vaccination and everyone 5 years and older should receive a booster shot. Booster shots are recommended as they “are an important part of protecting yourself from getting seriously ill or dying from COVID-19” according to the CDC.
However, emerging data paints a different picture.
At its crux, the vaccines were developed with the earlier strains of the coronavirus, meaning developers primarily used the original Wuhan strain in their testing. The Delta strain that came along was particularly infamous as it was known to have a high death rate, but vaccines fared quite well against it. The results, however, went south as time went on and as the Omicron strain rolled out.
Trying to Outrun Nature
Making its debut in South Africa, the Omicron strain started to dominate the world by the beginning of 2022, which caused even more turmoil in terms of vaccine efficacy. The most shocking result is the extent it dragged down the vaccine’s efficacy against infection. Data shows that the vaccine used to be around 90 percent effective for weeks on end after vaccination.
After Omicron came along, infection prevention dropped to less than 50 percent after about a month after two shots and dived into the negatives four months later. It doesn’t seem to stop after that.
This clearly suggests that the COVID-19 vaccination campaigns should’ve been suspended as soon as the Omicron variant began to dominate over Delta.
In a study which analyzed COVID-19 cases from the beginning of this year in children that were previously infected, it was discovered that vaccine effectiveness wasn’t keeping up with pre-Omicron levels. The effects of a full vaccination against a second infection drops into the negatives within a few months, and it seems that the earlier one got the vaccination, the more likely it would lose its efficacy during the omicron waves.
The results from a September 2022 British Medical Journal study highlights again the fact that vaccine potency drops rapidly with time. It concluded that protection against severe symptoms drops well below half within a few weeks of administering the full two doses, or even after a third dose is administered. It also showed that in the immunocompromised, two doses never had an efficacy rate against hospitalization over 50 percent. Things do look a little better for three doses, but not by much.
Another study published data on the efficacy of the third dose relative to primary doses and found that the mean efficacy of three doses of the Moderna vaccine against the Omicron variants are, in fact, below 0.
It is interesting to note a logical assumption made by many, which is that the more you take the vaccine the better prepared you are against the virus, isn’t necessarily true.
Data published shows that neutralizing antibody count doesn’t necessarily correlate with the number of doses.
They found that people who took the fourth dose sometimes had higher, but mostly lower, antibody concentrations in the body compared with those who took the third dose.
Also, the hazard ratio calculated by researchers for the third and fourth vaccine doses provide us with mixed results. Sometimes, it seems like a good option to stick with the third dose, as the hazard ratio actually rises for taking the second booster compared with the first one.
One possible reason vaccine data is going downhill after Omicron appeared is that the new variant had a lot of changes in its spike protein composition.
This changes the way the virus enters the body and allows it to better “bypass” the security system set up by the old vaccines, which were developed from the very first SARS-CoV-2 Wuhan strain. One can understand it as if the variants have new toys to play with the old security guards.
Another potential mechanism that leads to the significant decline of vaccine efficacy is that repeated vaccination also damages people’s immunity via immune imprinting, a phenomenon in which an initial exposure to a virus–such as the original strain of SARS-CoV-2, by infection or vaccination–limits a person’s future immune response against variants.
Meanwhile, there are numerous underlying factors that would contribute to the disease’s progression from mild to severe, or even into fatal stages. Even if the vaccination groups during clinical trials were carefully chosen to have similar comorbid medical conditions as the control or unvaccinated group, there are still many other unknown factors that would dictate the outcome of the disease progression.
It is inconceivable and overtly overambitious that any pharmaceutical company would aim so high to design a vaccine which can protect against severe diseases from the onset of research, especially since the resulting vaccine can’t seem to keep up with preventing infection in the first place.
If a vaccine reaches negative efficacy, it means that people have higher chances to get infected than if you didn’t get the shot in the first place, meaning that not getting vaccinated might just reduce the chance of infection, unwanted symptoms, and severe disease. This is not just a vaccine failure or breakthrough infection issue, but a good time to halt COVID vaccines for good. Humans will never win in this cat-and-mouse game against nature.
Are Previous Infections Still Protective?
As time goes on, the likelihood of reinfection is quite high. Studies do show that in reinfected people the chances of death, hospitalization, and some form of sequela is much higher in those infected for the first time. It also seems like a logical conclusion for the CDC to recommend that everyone gets vaccinated.
However, the data we have is rather conflicting as the aforementioned study doesn’t show much of a difference between the unvaccinated, the half vaccinated, or the fully vaccinated. They all have just about the same values for cardiovascular, thrombotic, renal, or pulmonary sequelae post infection, or chances of getting a tough COVID-19 infection in the first place.
Data also shows that previously infected and unvaccinated children were better at preventing a second infection compared with children who were in the same age category but who were vaccinated. Generally speaking, vaccine induced immunity doesn’t seem to be quite as effective as that induced by a previous, natural infection.
What this essentially means is that the vaccines cannot keep up with the constantly emerging variants and that a waning efficacy was frankly inevitable. The only question left is, what is the driving force behind the Omicron variants, or SARS-CoV-2 variants on a broad scale? What accounts for variants emerging at the same time around the world?
Microevolution cannot explain everything.
Over the past 3 years, scientists have applied the theory of evolution to describe and explain the trajectory of SARS-CoV-2. Delta was the deadly variant and now Omicron is the road runner. In theory, the virus developed these strains to best adapt to the objective environment, yet scientists are still looking for more answers.
For example, when much of the world’s population was in different degrees of “lockdown” or restriction of movements, when international travel was severely impaired, how did the Alpha and Delta variants emerge and quickly spread widely, and even become dominant globally?
If the only factor that determines which variant to become dominant or not was its fitness, i.e., its transmissibility and replication efficiency, why were there not multiple variants with better fitness that emerged and all became dominant regionally, just like how divergent strains of flowers blossom at the same time in distinct locations? Why does it appear as if there is a coordinating force behind the virus such that one strain was able to uniformly retire the previous one?
In order to answer all these questions, I believe that there needs to be a more holistic evaluation of the current pandemic. At the same time, it’s important to note that viruses adapt to the vaccines, and not the other way around.
Read more here...
Von Greyerz: As West, Debt, & Stocks Implode; East, Gold, & Oil Explode
Von Greyerz: As West, Debt, & Stocks Implode; East, Gold, & Oil Explode
Authored by Egon von Greyerz via GoldSwitzerland.com,
“The risk of over-tightening by the European Central Bank is nothing less than catastrophic” says Prof Kenneth Rogoff .
At Davos he also said:
“Italy is extremely vulnerable. But this could pop anywhere. Global debt has gone up massively since the pandemic: public debt, corporate debt, everything.”
Rogoff believes that it is a miracle that the world averted a financial crisis in 2022, but the odds of a major accident are shortening as the delayed effects of past tightening feed through.
As Rogoff said:
“We were very fortunate that we didn’t have a global systemic event in 2022, and we can count our blessings for that, but rates are still going higher and the risk keeps rising.”
But lurking in the murkiness is also the global financial assets/liabilities which is almost $500 trillion including the shadow banking system at 46% of the total. The shadow banking sector includes pension funds, hedge funds and other financial institutions which are largely unregulated.
Shadow banking is not subject to the normal mark-to-market rules. Thus no one knows what the real position or losses are. This means that central banks are in the dark when it comes to evaluation of the real risks of the system.
Clearly, I am not the only one harping on about the catastrophic global debt/liability situation.
And no one knows the extent of total global derivatives. But if they have grown in line with debt and also with the shadow banking system, they could easily be in excess of $3 quadrillion.
Cultures don’t die overnight, but the US has been in decline since at least the Vietnam war in the 1960s. Interestingly, the US has not had a real Budget surplus since the early 1930s with a handful of years of exception.
But when you, like the US, live on borrowed time and borrowed money, it becomes increasingly difficult to keep up appearances. In 1971, the pressures on the US economy and currency became too great. Thus Nixon closed the Gold Window with the dollar having lost over 98% in real terms since then. This is of course a total catastrophe and a guarantee that the remaining 2% fall to ZERO will come in the near term future, whether it takes 5 or 10 years for the dollar to reach oblivion. Remember that the final 2% is 100% from today!
The US, EU and Japan have now reached the stage when no one wants their debt. So sovereign debt of these nations is no longer a question of “passing the parcel” but keeping the parcel. When every third party holder of these debts is a seller, who will buy?
These three countries will end up holding their own debt. Japan already holds over 50% of its debt. Before the Western Ponzi scheme comes to an end, these three nations will virtually hold 100% of their own debt. At that point, the bonds will be worthless and interest rates will have reached infinity. Not a pretty prospect!
US – PERFECT RECIPE FOR DISASTER
The final phase of all empires always includes excessive deficits and debts, inflation, a collapsing currency, decadence and war. And the US qualifies perfectly in all those categories.
Ernest Hemingway stated it superbly:
The first panacea of a mismanaged nation is inflation of the currency; the second is war.
Both bring temporary prosperity;
both bring a permanent ruin.
But both are the refuge of political
and economic opportunists.
The US has failed in every war since the Vietnam war, including the Yugoslav Wars, Afghanistan, Iraq, Syria and Libya. The results have been massive casualties and destruction of the countries, often leading to economic misery, anarchy and terrorism.
The Ukrainian war is not between Ukraine and Russia but between the US and Russia as I discussed in a previous article (Link). The clear proof that there is no desire for peace from the US is that they are sending money and weapons to Ukraine in the $100s of billions and “encouraging” an increasingly suffering Europe to do the same. But they are not sending any peace negotiators to Russia in an attempt to end the war. This is very ominous.
The geopolitical situation is now on a knife edge with two major nuclear powers fighting about a relatively insignificant country. This is how major wars normally start.
Let us hope that the current conflict does not lead to a major nuclear war since that would be the end of the world. Thus not worth to speculate about the outcome of this high risk scenario.
But the economic war and the collapse of the US dominated financial system is not just inevitable but also catastrophic for the Western economies.
A COMMODITY DOMINATED WORLD
As the hegemony of the US is coming to an end, the dominance of the decadent West is moving quickly to the East and South. Commodity based countries like the enlarged BRICS will dominate for the next few decades and probably longer. Oil and gas will form the base of this shift but also many other commodities including gold which is now starting a new era.
It is likely that 2023 will be the first year of many when we will see a strong rise in gold just like 2000 – 2011 which saw a 7.5X gain.
The end of the Western debt based cycle and the rise of the Eastern and Southern commodity cycle is well illustrated in the graph below
OIL, GOLD TO GO UP > 9X AGAINST STOCKS
The S&P Commodity Index relative to Stocks has recently made a 50 year low. Just to return to the mean, the index would need to go up 4X. But when long term cycles turn up from a historical low, they tend to trend higher and longer than anyone expects. So a move past the 1990 high of 9 is very likely. This would mean that commodities, and especially oil and gold, relative to stocks would move up more than 9X!
This 9X move would obviously involve a combination of falling stocks and rising commodity prices.
The expected move of the index confirms the shift from the West, based on an unsound and debt infested system, to the East & South, based on commodities.
Much of this move is based on the fossil fuels of the countries involved – to the chagrin of the climate movement zealots.
In today’s woke world, there is a tendency to believe that we can change all the laws of nature and science. This is the case both in the economy and climate. Bankers and governments are confident that they can create permanent prosperity by printing worthless pieces of paper believing that these represent real and lasting value and wealth.
Well surprise, surprise, these people will soon have the shock of a lifetime as all that printed money returns to its intrinsic value of ZERO.
A debt based economy eventually becomes a self-fulfilling prophecy.
The higher the debt, the more the debt needs to grow in a never ending vicious circle. In the end the debt cycle becomes a perpetual motion Ponzi scheme……. UNTIL IT ALL CRASHES!
The debt feeds on itself and the more that is issued, the more needs to be issued. As inflation rises, the escalating interest cost on the debt leads to more debt. Next is defaults, both private and foreign. Then the $2-3 quadrillion derivatives, a great part of which is in the shadow banking system, comes under pressure. This leads to massive further debt creation by the Fed and other central banks, desperately trying to save the system.
This will eventually lead to what von Mises called: “…. a final and total catastrophe of the currency system involved.”
But remember that we are here talking about the Western financial system. The economic sun in the East will rise strongly and eventually be the guiding light for the world economy.
The debt based US and West will to quote Hemingway decline “first gradually and then suddenly.” So due to the $2+ quadrillion size of the problem, the biggest part of the decline is unlikely to take more than 10 years and it could be a lot faster, especially at the end.
But the climate zealots
will have to wait to 2050 to learn that through their actions they didn’t manage to limit the increase in temperature to 1.5 degrees. But with a lot of luck, climate cycles might be on their side and make the weather much colder.
Personally I believe that cycles determine the climate and not humans.
The climate cycle graph below covering 11,000 years shows that there has been numerous periods with warmer temperatures than currently. At the peak of the Roman Empire 2000 years ago, Rome had a tropical climate.
Fossil fuels produce 83% of the world’s energy today. According to forecasts this percentage is unlikely to come down significantly in the next 50 years.
Partly due to the increased cost of producing energy, fossil fuel production will fall by 26% by 2048. Increases in nuclear and renewables will not compensate for this decline.
If the world stops using fossil fuels, the world economy would totally collapse. Sadly the climate activist movement does not seem to worry about such disastrous consequences.
So it seems fairly clear that for a very long time, the world will be dependent on fossil fuels in order for the economy and population not to collapse.
For the above reasons, the commodity based countries will soon dominate the world and that for a very long time.
The constellations of commodity rich nations are forming rapidly.
Firstly we have the BRICS countries which currently consist of Brazil, Russia, India, China and South Africa. Many countries are in the process of joining BRICS including Saudi Arabia, Iran, Algeria, Argentina and Turkey.
It is the enlarged BRICS aim to bypass the dollar and create their own trading currency.
Many talk about the Petroyuan replacing the Petrodollar but what would everyone do with the Chinese currency since it isn’t freely convertible. Better then to have a currency linked to several commodity countries like Special Drawing Rights. This would create more stability and usability. The Credit Suisse analyst Pozsar calls this Bretton Woods III.
There is also the EAEU or Eurasia Economic Union with Russia leading plus China, India, Iran, Turkey and UAE involved.
The SCO – the Shanghai Cooperation Organisation headquartered in China is also an important force. The SCO is a political, economic, international security and defence organisation. It includes many Eurasian nations like China, Russia, Uzbekistan, Kazakhstan etc.
All the economies involved in this important development are commodity based. For example, commodities are 30% of Russian GDP. Their target is to expand gold mining to 3% of GDP and become the biggest gold producer in the world.
Russia has the world’s largest commodity reserves at $75 trillion and produces 11 million barrels of oil per day. Russian friendly provinces produce another 14M totalling 25M. China produces 5m barrels and the Middle East Oil going through the Strait of Hormuz is 22M barrels. So in a conflict with the US, Russia, China and Iran could decide to close the Strait of Hormuz which means they would have control over 50% of global oil supply. As Goldman Sachs has stated, oil would then be in the $1000s.
If we take Russia, Iran and Venezuela, they control 40% of the global oil supply.
The point I am making is that these various constellations of commodity countries will be the dominant economic power of the future as the US and Europe decline.
So for Russia, gold and oil are two strategic commodities which will play an important role not just for Russia but for all of these Eastern/Southern countries.
And no one should believe that the US and European sanctions are working. Russia and Iran are selling oil and gas to China at a discount. China then exports this, including refined products, to Europe at premium.
So the sanctions are a farce which totally kills the European economy.
Interestingly, the relationship between yellow gold and black gold has been stable for decades as this chart shows:
GOLD / OIL RATIO 1950 – 2023
GOLD – THE VITAL WEALTH PRESERVATION ASSET FOR 2023 AND BEYOND
Gold was the best performing asset class in 2022 but the investment world didn’t notice since it is hanging on to the declining bubble assets of stocks, bonds and property.
Let’s look at gold’s performance in various currencies in 2022:
The chart shows gold up 15% against Swedish Kroner on the right and for example up 11.6% in pounds, 6% in Euros and virtually unchanged in US$.
Bearing in mind that most asset markets, including bonds, have fallen by 20-30%, this is an outstanding performance by gold.
But no one must believe that gold is going up. All gold does it to reflect the total mismanagement of most economies. The chart above should be turned upside down to reflect the loss of purchasing power of all paper money.
As has been the case since 1971, this trend of falling currencies will continue but not at the same steady pace.
With the debt infested Western economies collapsing, their currencies will implode one after the other.
So please firstly acquire as much physical gold as you can afford and then some more.
And when you own your gold, don’t measure the value in collapsing currencies. Just measure your gold in ounces, kilos or grammes.
Also please don’t keep it in the country where you live, especially if that country has a tendency to grab assets. I don’t need to tell you which countries you can’t trust. The problem is, there are not many you can trust.
BEWARE – A GOLD CUSTODIAN DISAPPEARED WITH CLIENTS’ METALS
Also if you store your gold with a gold custodian, ensure that only you can release it by having the Warehouse Receipt in your name. A custodian gold company disappeared last year with the major customer assets in spite of the gold being stored with a major vault company. The weakness was that the gold company could release the gold without the client’s approval. This is not an acceptable way to store your wealth preservation asset.
Finally remember that gold is not just your most important wealth preservation asset but can also be beautiful.
TUTANKHAMUN’S DEATH MASK 1327 BC
Federal Food Stamps Program Hits Record Costs In 2022
Federal Food Stamps Program Hits Record Costs In 2022
In early January, The Wall Street Journal Editorial Board warned that one peril of a…
In early January, The Wall Street Journal Editorial Board warned that one peril of a large administrative state is the mischief agencies can get up to when no one is watching.
Specifically, they highlight the overreach of the Agriculture Department, which expanded food-stamp benefits by evading the process for determining benefits and end-running Congressional review.
Exhibit A in the over-reach is the fact that the cost of the federal food stamps program known as the Supplemental Nutrition Assistance Program (SNAP) increased to a record $119.5 billion in 2022, according to data released by the U.S. Department of Agriculture...
Food Stamp costs have literally exploded from $60.3 billion in 2019, the last year before the pandemic, to the record-setting $119.5 billion in 2022.
In 2019, the average monthly per person benefit was $129.83 in 2019, according to the U.S. Department of Agriculture. That increased by 78 percent to $230.88 in 2022.
Even more intriguing is the fact that the number of participants had increased from 35.7 million in 2019 to 41.2 million in 2022...
All of which is a little odd - the number of people on food stamps remains at record highs while the post-COVID-lockdown employment picture has improved dramatically...
If any of this surprises you, it really shouldn't given that 'you, the people' voted for the welfare state. However, as WSJ chided: "abuse of process doesn’t get much clearer than that."
In its first review of USDA, the GAO skewered Agriculture’s process for having violated the Congressional Review Act, noting that the “2021 [Thrifty Food Plan] meets the definition of a rule under the [Congressional Review Act] and no CRA exception applies. Therefore, the 2021 TFP is subject to the requirement that it be submitted to Congress.” GAO’s second report says “officials made this update without key project management and quality assurance practices in place.”
Abuse of process doesn’t get much clearer than that. The GAO review won’t unwind the increase, which requires action by the USDA. But the GAO report should resonate with taxpayers who don’t like to see the politicization of a process meant to provide nutrition to those in need, not act as a vehicle for partisan agency staffers to impose their agenda without Congressional approval.
All of this undermines transparency and accountability for a program that provided food stamps to some 41 million people in 2021. The Biden Administration is using the cover of the pandemic to expand the entitlement state beyond what Congress authorized.
The question now is, will House Republicans draw attention to this lawlessness and use their power of the purse to stop it to the extent possible with a Democratic Senate.
And don't forget, the US economy is "strong as hell."
Week Ahead Alchemy: Can Powell Turn a Quarter-Point Move into a Hawkish Hike?
The new year is still young, but the week ahead may be one of the most important weeks of the year. The divergence that the market has been anticipating…
The new year is still young, but the week ahead may be one of the most important weeks of the year. The divergence that the market has been anticipating will materialize. The Federal Reserve will most likely hike by 25 bp on Wednesday, followed by half-point moves by the European Central Bank and the Bank of England the following day. On Friday, February 3, the US will report its January employment situation. It could be the slowest job creation since the end of 2020. The Bureau of Labor Statistics also will release the preliminary estimate of its annual benchmark revisions.
The markets' reaction may be less a function of what is done than what is communicated. The challenge for Fed Chair Powell is to slow the pace of hiking while pushing against the premature easing of financial conditions. In December, ECB President Lagarde pre-committed to a 50 bp hike in February and hinted that another half-point move was possible in March. With the hawks showing their talons in recent days, will she pre-commit again? Amid a historic cost-of-living squeeze that has already kneecapped households, can Bank of England Governor Bailey deliver another 50 bp rate hike and sell the idea that it is for the good of Britain, for which the central bank does not expect growth to return until next year?
United States: The Federal Reserve has a nuanced message to convey. It wants to slow the pace of hikes, as even the hawkish Governor Waller endorsed, but at the same time, persuade the market that tighter financial conditions are necessary to ensure a times convergence of price pressures to the target. Indeed, Fed Chair Powell may warn investors that if it continues to undo the Fed's work, more tightening may be necessary. The market has heard this essentially before and is not impressed. Financial conditions have eased. Consider that the 2-year yield is down 20 bp this year, and the 10-year yield has fallen twice as much. The trade-weighted dollar is off by more than 1.5%. The S&P 500 is up 4.6% after a 7% rally in Q4 22. The Russell 200 has gained nearly 7% this month, on top of the 5.8% in the last three months of 2022.
Last year, Powell drew attention to the 18-month forward of the three-month T-bill yield compared to the cash 3-month bill as a recession tell. It has been inverted for over two months and traded below -100 bp last week, the most inverted since the tech bubble popped over two decades ago. The market seems more convinced that inflation will fall sharply in the coming months. The monetary variables and real economy data, including retail sales, industrial production, and the leading economic indicators, suggest a dramatic weakening of the economy. Yet just like most looked through the contraction in H1 22, seeing it as primarily a quirk of inventory and trade, the 2.9% growth reported in Q4 22 does not change many minds that the US economy is still headed for weaker growth, leaving aside the fuzzy definition of a recession.
The median forecast in Bloomberg's survey is for a 188k rise in January nonfarm payrolls. If accurate, it would be seen as concrete evidence that the jobs market is slowing. This is also clear by looking at averages for this volatile series. For example, in the last three months of 2022, the US created an average of 247k jobs a month. In the first nine months of the year, nonfarm payrolls rose by an average of 418k a month. Average hourly earnings growth also is moderating. A 0.3% rise on the month will see the year-over-year pace slow to 4.3%. That matches the slowest since June 2021. The decline in the work week in December to 34.3 hours spurred narratives about how businesses, hoarding labor, would cut hours before headcount. Yet, we suspect it was partly weather-related, and that the average work week returned to 34.4 hours, which is around where it was pre-Covid.
Benchmark revisions are usually of more interest to economists than the market, but last month's report by the Philadelphia Fed raised the stakes. It looked more closely at the April-June 2022 jobs data. After adjusting for updated data from the Quarterly Census on Employment and Wages, it concluded that job growth was nearly flat in Q2 22. It estimated that only 10,500 net new jobs were created, a far cry from the 1.05 mln jobs estimated by the Bureau of Labor Statistics. The Business Employment Dynamics Summary (released last week) was starker still. It points to a job loss of nearly 290k. Lastly, we note that US auto sales are expected to have recovered from the unexpected almost 6% decline (SAAR) in December. However, the 14.1 mln unit pace would still represent a 6% decline from January 2022, when sales spiked to 15.04 mln.
The Dollar Index continues to hover around 102, corresponding to the (50%) retracement of the rally recorded from January 2021 through September 2022. It has not closed above the 20-day moving average (now ~102.80) since January 3. It remains in the range set on January 18, when it was reported that December retail sales and manufacturing output fell by more than 1%. That range was about 101.50-102.90. Although we are more inclined to see it as a base, the prolonged sideways movement last month saw new lows this month. That said, the next retracement target (61.8%) is near 99.00.
Eurozone: The ECB rarely pre-commits to a policy move, precisely what ECB President Lagarde did last month. Apparently, as part of the compromise with members who at first advocated another 75 bp hike in December, an agreement to raise rates by 50 bp was accompanied by an agreement to hike by another 50 on February 2 and explicitly not rule out another half-point move in March. There was a weak effort to soften the March forward guidance, but the hawks pushed back firmly. The swaps market has about a 70% chance of a 50 bp hike in March rather than a 25 bp move.
The ECB's deposit rate stands at 2.00%, and the swaps market is pricing 125 bp of hikes in the first half of the year. In contrast, the Fed is expected to raise the Fed funds target range by 50 bp. This has been reflected in the two-year interest rate differential between the US and Germany, falling from about 275 bp last August to around 160 bp now. We had anticipated the US premium would peak before the dollar, and there is a lag of almost two months. The direction and change of the interest rate differential often seem more important than the level. In late 2019, before Covid struck, the US premium was near 220 bp, and the euro was a little below $1.12.
There has been a significant shift in sentiment toward the eurozone. The downside risks that seemed so dominant have been reduced. A milder-than-anticipated winter, the drop in natural gas prices, and successful conservation and conversion (to other energy sources) lifted the outlook. Some hopeful economists now think that the recession that seemed inevitable may be avoided. The preliminary January CPI will be published a day before the ECB meets. The monthly pace fell in both November and December. The year-over-year rate is expected to ease to 5.1% from 5.2%, while the core rate slips to 5.1% from 5.2%. The base effect suggests a sharp decline is likely here in Q1, but divergences may become more evident in the euro area. This could see a reversal of the narrowing of core-periphery interest rate spreads.
The EU's ban on refined Russian oil products (e.g., diesel and fuel oil) will be implemented on February 5. It is considering imposing a price cap as it did with crude oil. Diesel trades at a premium to crude, while fuel oil sells at a discount. There have been reports of European utilities boosting purchases from Russia ahead of the embargo. Separately, reports suggest that the EU was still the largest importer of Russian oil in December when pipeline and oil products were included. However, at the end of December, Germany stopped importing Russia's oil delivered through pipelines. This does not count oil and refined producers that first go to a third country, such as India, before being shipped to Europe.
Pullbacks in the euro have been shallow and brief. Most pullbacks since the low was recorded last September, except the first, have mostly been less than two cents. That would suggest a pullback toward the $1.0730 area, but buyers may re-emerge in front of that, maybe around $1.0775. On the top side, the $1.0940 is the (50%) retracement of the euro's losses since January 2021. The euro rose marginally last week, even though it slipped by around 0.2% in the last two session. It has risen in eight of the past 10 weeks.
UK: Without some forward guidance that stopped short of a pre-commitment, the market is nearly as confident that the Bank of England will deliver another half-point hike in the cycle to lift the base rate to 4.0%. The BOE was among the first of the G10 countries to begin the interest rate normalization process and raised the base rate in December 2021 from the 0.10% it had been reduced to during the pandemic. The swaps market projects the peak between 4.25% and 4.50%, with the lower rate seen as slightly more likely.
High inflation readings and strong wage growth appear to outweigh the economic slump. The BOE's forecasts see the economy contracting 1.5% year-over-year this year and output falling another 1% in 2024. The market is not as pessimistic. The monthly Bloomberg survey (51 economists) founds a median forecast for a 0.9% contraction this year and an expansion of the same magnitude next year. The survey now sees only a 0.2% quarterly contraction in Q4 22 rather than -0.4% in the previous survey. The median forecast for the current quarter was unchanged at -0.4%.
Sterling continues to encounter resistance in front of $1.2450, which it first approached in mid-December. Although marginal new highs have been recorded, like the euro, it has been mainly confined to the range set on January 18 (~$1.2255-$1.2435). We are inclined to see this sideways movement as a topping pattern rather than a base, but it likely requires a break of the 1.2225 area to confirm.
Japan: After contracting in Q3 22, the Japanese economy is expected to have rebounded in Q4 (~3.0% annualized pace). Reports on last month's labor market, retail sales, and industrial production will help fine-tune expectations. This month's rise in the flash composite PMI moved back above 50, pointing to some momentum. Still, Tokyo's higher-than-expected January CPI warns of upside risk to the national figure due offers good insight into the national figure, which may draw the most attention. We expect Japanese inflation to peak soon. The combination of government subsidies, the decline in energy prices, including the natural gas it gets from Russia, and the stronger yen (which bottomed in October) will help dampen price pressures. We look for a peak here in Q1 23.
Last week, the dollar moved broadly sideways against the yen as it continued to straddle the JPY130 area. It repeatedly toyed with the 20-day moving average (~130.40) last week but has yet to close above this moving average for more than two months. Rising US and European yields may encourage the market to challenge the 50 bp cap on Japan's 10-year bond. A break of the JPY128.80 area may spur a test on the JPY128.00 area. However, the market seems to lack near-term conviction.
China: Mainland markets re-open after the week-long Lunar New Year holiday. There may be two drivers. The first is catch-up. Equity markets in the region rose. The MSCI Asia Pacific Index rose every session last week and moved higher for the fifth consecutive week. The JP Morgan Emerging Market Currency Index rose about 0.40% last week and is trading near its best level since mid-2022. The euro and yen were little changed last week (+/- <0.20%). The second driver is new news--about Covid and holiday consumption. The PMI is due on January 31, and the median forecast in the Bloomberg survey is for improvement. It has the manufacturing PMI rising to 49.9 from 47.0 and the service PMI jumping to 51.5 from 41.6. The offshore yuan edged up 0.3% last week, suggesting an upside bias to the onshore yuan, against which the dollar settled at CNY6.7845 ahead of the holiday.
Canada: After the Bank of Canada's decision last week, the FOMC meeting, and US employment data in the days ahead, Canada is out of the limelight. It reports November GDP figures and the January manufacturing PMI. Neither are likely to be market movers. The Bank of Canada is the first of the G7 central banks to announce a pause (conditional on the economy evolving like the central bank anticipates) with a target rate of 4.50%. The central bank sees the economy expanding by 1% this year and 1.8% next. It suggests that the underlying inflation rate has peaked and, by the end of the year, may slow to around 2.6%. The swaps market has 50 bp of cut discounted in the second half of the year.
The Canadian dollar held its own last week, rising by about 0.5%, which was second only to the high-flying Australian dollar. The greenback approached CAD1.3300, its lowest level since last November when it traded around CAD1.3225. Quietly, the Canadian dollar has strung together a six-week advance, and since its start in mid-December, it has been the third-best performer in the G10 behind the yen (~6.2%) and the Australian dollar (~6.1%). We are more inclined to see the greenback bounce toward CAD1.3400 before those November lows are re-tested.
Australia: The market's optimism about China recovering from the Covid surge, with the help of government support and attempts to help the property market, has been reflected in the strength of the Australian dollar, which leads the G10 currencies with around a 4.4% gain this year. Yet, changes in the exchange rate and Chinese stocks are not highly correlated in the short- or medium-term. The surge of inflation at the end of last year, reported last week, lent greater credence to our view that the Reserve Bank of Australia will lift the cash target rate by 25 bp when it meets on February 7. In the week ahead, Australia reports December retail sales, private sector credit, and some housing sector data, along with the final PMI readings. The momentum indicators are stretched after a 2.5-cent rally from the low on January 19. It is at risk of a pullback and suggests a break of $0.7080 may be the first indication that it is at hand. We see potential initially toward $0.7000-$0.7040.
Mexico: After falling by nearly 5.25% in the first part of the month against the Mexican peso, the dollar is consolidating. The underlying case for peso exposure remains, but there are two mitigating conditions. First, surveys of real money accounts suggest many are already overweight. Second, the dollar met key target levels in it late-2019 (~MXN18.80), even if not to the February 2020 low (slightly below MXN18.53). On January 31, Mexico reports Q4 GDP. The economy is expected to have expanded by 0.5% after 0.9% quarter-over-quarter growth in Q3 22. Growth is expected to slow further in Q1 23 before grinding to a halt in the middle two quarters. The following day, Mexico reports December worker remittances. These have been a strong source of capital inflows in Mexico. Remittances have a strong seasonal pattern of rising in December from November, which sees remittances slow. However, after surging for the last couple of years, they appear to have begun stabilizing. Also, the optimism around China is understood to be more supportive of Brazil and Chile, for example, than Mexico.
We do not have a very satisfying explanation for the two-day jump in the dollar from about MXN18.5670 to MXN19.11 (January 18-19) outside of market positioning and the possibility of some large hedge working its way through. Still, it seemed like a transaction-related flow rather than a change in the underlying situation. The greenback has trended lower since then and has fallen in five of the last six sessions. It fell to nearly MXN18.7165 ahead of the weekend. Latam currencies, in general, did well, with the top two emerging market currencies coming from there (Brazil and Chile). The Mexican peso rose about 0.4% last week. Last week, the Argentine peso's loss of almost 1.2% gave it the dubious honor of the worst performer among emerging market currencies. It is now off nearly 4.6% for this month. Mexican stocks and bonds extended their rallies. A firmer dollar ahead of the February 1 conclusion of the FOMC meeting may see the peso consolidate its recent gains.
Disclaimerrecession pandemic subsidies bonds sp 500 stocks fomc fed federal reserve currencies canadian dollar euro yuan governor recession gdp oil india brazil mexico japan canada european europe uk germany russia eu china
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